1. Alpha Co. bonds have a face value of $1,000. The bonds carry an 8 percent coupon rate, pay coupon payment semi-annually, and expire in 6 years. What is the current price of these bonds if the yield to maturity is 6 percent?
Price = $40*PVIFA(3%, 12) + 1,000*PVIF(3%, 12)
Price = $40*(1-(1/1.03)^12)/0.03 + 1,000/1.03^12
Price = $1,099.54
2. Based on question 4, what is the current price of the Alpha Co. bonds if the yield to maturity is 10% instead of 6%? What about YTM 8%? What can you summarize from question 4 and 5 about the relationship between coupon rate vs. YTM and price vs. face value?